Switzerland scrambles after Trump makes it Europe's biggest loser

Telegraph

a day ago

For more than 200 years, Switzerland's approach to foreign policy has been to stay neutral. Yet when it comes to Donald Trump, a man who demands loyalty, neutrality doesn't get you much.
The peace-loving Alpine nation has found itself at the forefront of Trump's erratic trade war, with exports such as Swiss chocolate and watches now subject to US tariffs of 39pc.
'Basically, we are all shocked,' says Jan Atteslander from Economiesuisse, a business lobby organisation representing 100,000 businesses in the country. 'We are one of the most open economic partners of the US. We have no tariff and non-tariff barriers for US goods or services. We are number six for foreign direct [investment] in the US.
'In this context, to find early on Friday, at 3am, that you are among the four countries that have – by way out now – the highest import tariffs in the US across the board, it's really a shock.'
The outcome could hardly be worse: Only Syria, Laos and Myanmar face steeper rates than Switzerland of up to 41pc. Even Taliban-run Afghanistan was handed a more favourable deal of 15pc.
To add insult to injury, the announcement came on Switzerland's National Day.
'There are two days in the year – one is Christmas, and the other one is Aug 1 – where normal people are on holiday,' shrugs Atteslander.
The tariff shock has left Bern scrambling. Karin Keller-Sutter, the Swiss president, and Guy Parmelin, the economy minister, are flying to the US on Tuesday for crisis talks. It comes after a disastrous last-ditch call between the Swiss leader and Trump late on Thursday.
The unexpected tariff blow has unleashed anger and soul-searching in Switzerland, with the tabloid Blick declaring it the country's greatest defeat since a battle against France in 1515, which ushered in its policy of international neutrality.
'We're joining the Canadians in protest against the US,' says Nikolay Markov, an economist at Pictet Asset Management in Geneva.
He argues that the Swiss shouldn't have been caught flat-footed.
'It shouldn't be surprising because Switzerland has a significant trade surplus with the US. That's one of the reasons why Switzerland is on the monitoring watch list of the US treasury,' he says.
Switzerland sold £28.8bn more goods to the US last year than it bought, with £47.6bn-worth of items heading to America. Exports range from luxury watches to precision instruments such as pneumatic screwdrivers and micrometres to medicines and Nespresso pods.
Its trade surplus with the world's largest economy grew by 56.1pc from 2023. Trump initially subjected Switzerland to import duties of 31pc on 'liberation day' on April 2.
Most goods exports, apart from pharmaceuticals and gold, will be subject to the new tariff from Thursday unless Keller-Sutter can strike a better deal. The US president has demanded that Swiss drugmakers lower their prices, an issue that may well come up in negotiations.
Swiss business leaders and politicians are, for now trying to keep cool heads, hoping that this will be another example of the phenomenon that traders refer to as 'Taco': Trump always chickens out. While the president likes to announce large headline rates, he tends to use them as a bludgeon to negotiate better deals rather than following through.
The stakes are high. Markov says he initially expected tariffs to shave 0.2pc of the Swiss economy's growth. 'Now it's 1.8pc, so it implies no growth for Switzerland in the coming year. It really changes the economic outlook – potentially materially,' he says.
Such a knock to growth would plunge Switzerland into a technical recession and leave many workers unemployed.
Chocolatiers are among those bracing for the impact. 'It's quite a shock because with tariffs at that level, it will be hard to serve the US market,' says Roger Wehrli. He is the Bern-based chief executive of Chocosuisse and Biscosuisse, trade bodies representing chocolatiers and confectionery makers.
'Combined with the exchange rate changes, this leads to an increase of costs in certain US markets by around 55pc compared to the beginning of the year,' he says.
He warns that Switzerland being singled out leaves it particularly vulnerable.
'The UK has only a tariff of 10pc, the European Union 15pc. So our companies will have a comparative disadvantage. This leads to the conclusion that if this tariff remains, a lot of companies will pull out of the US market,' Wehrli says.
The 39pc rate is beyond even the worst-case scenarios companies had planned for, Wehrli says. He also fears the wider damage to the Swiss economy.
'When we look at this economy in general, we export around 15pc to the United States. I'm very much concerned. It will pose severe challenges to the labour market.'
Atteslander at trade body Economiesuisse says: 'There are thousands of jobs at risk, but I can't really tell if it is really going to happen or not.'
For now, companies like Swatch are temporarily able to rely on all of the stock they rushed into the US in the first half of the year. The watchmaker has enough sitting in US warehouses to last it for at least three to six months, according to its chief executive.
Knife maker Victorinox, another Swiss brand, meanwhile, said it was looking to make its operations more efficient through automation and 'collaborative solutions with our distribution partners'.
'This is not the first big challenge these export companies have faced over the last 15 to 20 years,' says Atteslander.
If 39pc tariffs do remain in place, companies could explore workarounds. One unlikely benefactor of Trump's trade offensive could be Slovenia, according to Markov, the economist in Geneva.
'Slovenia is a major trading partner and is part of the European Union and the eurozone, so they're subject to 15pc tariffs. Switzerland could, to some extent, bypass the 39pc tariffs by exporting to Slovenia for re-exports to the US.'
Swiss pharmaceuticals have already invested billions into production facilities in the small central European nation. Other industries could follow.
Ultimately, though, Swiss leaders will be hoping to avoid all that. The federal council – the country's governing cabinet – on Monday said Switzerland was prepared to make a 'more attractive offer' to Trump in an effort to negotiate lower tariffs.